Treasury Secretary Timothy Geithner, left, accompanied by Federal Reserve Chairman Ben Bernanke, center, and William Dudley president and chief executive officer of the Federal Reserve Bank of New York, testifying on Capitol Hill in Washington, Tuesday, March 24, 2009, before a House Financial Services Committee hearing on AIG. (AP Photo/Evan Vucci)

Washington (CNSNews.com) – Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke issued a unified call Tuesday for wide-ranging new federal regulations that would empower the government to seize large non-bank financial institutions in trouble.

The government’s financial czars also want authority to impose market-wide controls on how much risk financial companies assume and how much they pay their executives.

In testimony before the House Financial Services Committee, Geithner said the government lacks the authority to unwind financial giants like American International Group (AIG), which it acquired last year to keep it from going under.

Both said that such authority is necessary to prevent future financial collapses.

“The U.S. government does not have the legal means today to manage an orderly restructuring of a large, complex, non-bank financial institution,” Geithner said.

“To achieve that goal, the administration and Congress have to work together to enact comprehensive regulatory reform and eliminate gaps in supervision. All institutions and markets that could pose systemic risk will be subject to strong oversight, including appropriate constraints on risk-taking.

“Finally, we must create a new resolution authority so that the federal government has the tools it needs to unwind an institution of the size and complexity of AIG.”

Bernanke also cited AIG as the driving force behind the government’s new regulatory zeal, saying that had greater authority existed, the current AIG debacle could have been avoided.

“AIG highlights the urgent need for new resolution procedures,” Bernanke explained. “If a federal agency had had such tools on Sept. 16 (when AIG first received government assistance), they could have been used to put AIG into conservatorship or receivership.

Bernanke also said the AIG situation highlights the need for “strong, effective consolidated supervision” of all “systemically important financial firms” – firms so important to the financial system that they cannot be allowed to fail.

The authority Geithner and Bernanke are seeking is similar to that held by the Federal Deposit Insurance Corporation (FDIC) when it comes to bank failures. Currently, the FDIC insures deposits of $100,000 or less in banks that are in receivership.

The administration is calling for the authority to be expanded to include non-bank financial institutions that the government doesn’t insure.

When the government takes a bank into receivership or conservatorship it has the power to restructure all of its contracts and debt agreements, including loans and other lines of credit. Once it has restructured the bank, the government then sells off the bank’s portfolio to various competitors, who take over the deposits and loans.

The FDIC might -- or might not -- be called on to exercise authority over non-bank institutions.

Geithner, meanwhile, called for market-wide regulations on how companies pay their top employees, saying the issue went beyond the recent flap over bonuses at AIG.

“The issue of executive compensation extends beyond AIG and requires reform of the system of incentives and compensation in the financial sector,” he said.

“It appears to me that we are doing a kabuki theater in three acts,” Sherman said. “The first act: Washington tells the American people, ‘We understand your anger at Wall Street.’ In the second act, we knit-pick to death any proposal that actually adversely effects Wall Street. In the third act we bestow $1 trillion on Wall Street under very preferable terms.”